From Idea to Law

Hey team,

So the United States Senate approved the tax bill last Saturday. This followed the approval by the House of Representatives back in November. The thing is, the tax bill which the Senate approved is not the same as the tax bill which the house approved. Weird right? So there’ stills some work to do. All signs point to this thing getting up by Christmas though, which is why the stock market is on a bit of a high right now. So how does it all work?

From Idea to Law
In the United States, the job of passing new laws into the public domain sits with the United States Congress, or “Washington”, which itself is made up of the House of Representatives and the Senate (or the lower and upper house).

  • Before a law becomes a law, it starts off as a bill, which can be proposed by anyone in either house (the tax bill started its life in the House of Representatives). Usually they start off pretty high-level, like “reduce the corporate tax rate from 35% to 20%”. The problem is, there are so many self-interested, self-motivated, selfish individuals in government, that it never quite ends out that way. For a bill to get passed, it needs a majority of people in the House to pass it. Congress(wo)men know this, as contrary to popular belief, they are not entirely idiotic, so before promising their vote, they each try and get their own self-interests included within the bill. 6,000 pages later, the House is ready to vote on it. Assuming it gets up…


  • It’s off to the other house (in this case the Senate) who receive this new and extended edition of the bill, and go through the exact same process. I.e. the self-interested, self-motivated, selfish individuals each try to get their own needs represented in the bill before agreeing to their vote. When they do vote, assuming it gets up…


  • Members from the House and the Senate get together and try to work through the differences between the bill which was passed in the House and the one which was passed in the Senate. Usually they are pretty similar, but not always. Assuming they come to an agreement…


  • This revised bill is sent to the President for signature. Assuming (s)he signs it and does not veto…

The bill becomes law.

And back to the current one
The Senate and the House managed to pass pretty similar bills. This article and this article provide the simplest side-by-side comparison and explanation of the two I could find. Anyway, all political pundits agree that they are going to nut-out their differences and get a bill sent to Trump which he will sign.

Soap box warning 
My personal opinion is that wherever they land, it will end up being a particularly sh*t bill. Aside from reducing the corporate rate from 35% to 20%, which in itself is a bad idea, the bill is going to really screw people who are poor and massively help people who are rich (which for what it’s worth, is the Republican way). The Senate for example, has slipped into its version of the bill an effective repeal of Obamacare (sneaky bast*rds). The House wants to eliminate a rule which enforces an absolute minimum tax rate, which is supposed to ensure that even if rich people hire smart accountants, they won’t be able to engineer an outcome where they pay a tax rate below a certain level. Sigh. #why

Taxes are going down in the United States and there’s really nothing you can do about it. Business will be keeping more of their profits, people will be keeping more of their salaries and the government by definition will be receiving less income. The net outcome in the short term should be positive for both jobs and corporate profits and stocks all over the world are going up now in anticipation.

The government does have that 18.5 trillion dollar debt problem though.

Anyway, that’ s 5 minutes. Hope it helped. 

Categories: General Finance, Macro Economics


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